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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________
FORM 10-Q
_____________________________________________
| | | | | |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended September 30, 2023 |
OR
| | | | | |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from to |
Commission file number 001-39535
SHARECARE, INC.
(Exact name of registrant as specified in its charter)
| | | | | | | | |
Delaware | | 85-1365053 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | |
255 East Paces Ferry Road NE, Suite 700 Atlanta, Georgia | | 30305 |
(Address of Principal Executive Offices) | | (Zip Code) |
(404) 671-4000
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.0001 per share | SHCR | The Nasdaq Stock Market LLC |
Warrants, each warrant exercisable for one share of common stock, each at an exercise price of $11.50 per share | SHCRW | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
Large accelerated filer | o | Accelerated filer | x |
Non-accelerated filer | o | Smaller reporting company | o |
| | Emerging growth company | x |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
As of November 6, 2023, there were 352,423,864 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.
Sharecare, Inc.
Table of Contents
Part I - Financial Information
ITEM 1. FINANCIAL STATEMENTS
SHARECARE, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share amounts)
| | | | | | | | | | | |
| As of September 30, 2023 | | As of December 31, 2022 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 128,008 | | | $ | 182,508 | |
Accounts receivable, net (net of allowance for doubtful accounts of $8,788 and $7,197, respectively) | 125,045 | | | 116,877 | |
Other receivables | 1,915 | | | 4,114 | |
Prepaid expenses | 8,604 | | | 12,612 | |
Other current assets | 4,833 | | | 4,515 | |
Total current assets | 268,405 | | | 320,626 | |
Property and equipment, net | 3,911 | | | 5,082 | |
Other long-term assets | 18,762 | | | 20,362 | |
Intangible assets, net | 146,818 | | | 163,114 | |
Goodwill | 191,703 | | | 191,817 | |
Total assets | $ | 629,599 | | | $ | 701,001 | |
Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity | | | |
Current liabilities: | | | |
Accounts payable | $ | 26,642 | | | $ | 8,838 | |
Accrued expenses and other current liabilities (Note 3) | 77,560 | | | 81,627 | |
Deferred revenue | 6,029 | | | 9,032 | |
Contract liabilities, current | 384 | | | 1,535 | |
Total current liabilities | 110,615 | | | 101,032 | |
Warrant liabilities | 523 | | | 2,441 | |
Long-term debt | 450 | | | — | |
Other long-term liabilities | 8,209 | | | 16,723 | |
Total liabilities | 119,797 | | | 120,196 | |
Commitments and contingencies (Note 7) | | | |
Series A redeemable convertible preferred stock, $0.0001 par value; 5,000,000 shares authorized; 5,000,000 shares issued and outstanding, aggregate liquidation preference of $50,000 as of September 30, 2023 and December 31, 2022 | 58,205 | | | 58,205 | |
Stockholders’ equity: | | | |
Common stock $0.0001 par value; 600,000,000 and 600,000,000 shares authorized; 352,013,646 and 354,463,620 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively | 35 | | | 35 | |
Additional paid-in capital | 1,146,035 | | | 1,120,024 | |
Accumulated other comprehensive loss | (2,809) | | | (2,794) | |
Accumulated deficit | (691,128) | | | (595,820) | |
Total Sharecare, Inc. stockholders’ equity | 452,133 | | | 521,445 | |
Noncontrolling interest in subsidiaries | (536) | | | 1,155 | |
Total stockholders’ equity | 451,597 | | | 522,600 | |
Total liabilities, redeemable convertible preferred stock and stockholders’ equity | $ | 629,599 | | | $ | 701,001 | |
The accompanying notes are an integral part of these consolidated financial statements.
SHARECARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(In thousands, except share and per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Revenue (inclusive of $14,962 and $12,685 of related party revenue for the three months ended September 30, 2023 and 2022, respectively, and $51,755 and $28,138 of related party revenue for the nine months ended September 30, 2023 and 2022, respectively) | $ | 113,327 | | | $ | 114,619 | | | $ | 339,975 | | | $ | 319,153 | |
Costs and operating expenses: | | | | | | | |
Costs of revenue (exclusive of depreciation and amortization; inclusive of $8,441 and $5,666 of related party costs for three months ended September 30, 2023 and 2022, respectively, and $24,796 and $5,666 of related party costs for the nine months ended September 30, 2023 and 2022, respectively) | 64,367 | | | 60,322 | | | 195,207 | | | 165,052 | |
Sales and marketing | 13,549 | | | 12,032 | | | 43,858 | | | 40,698 | |
Product and technology | 15,269 | | | 17,136 | | | 53,112 | | | 54,237 | |
General and administrative | 35,251 | | | 38,552 | | | 104,741 | | | 138,041 | |
Depreciation and amortization | 14,613 | | | 12,053 | | | 43,578 | | | 32,831 | |
Total costs and operating expenses | 143,049 | | | 140,095 | | | 440,496 | | | 430,859 | |
Loss from operations | (29,722) | | | (25,476) | | | (100,521) | | | (111,706) | |
Other income (expense): | | | | | | | |
Interest income | 1,535 | | | 319 | | | 4,861 | | | 450 | |
Interest expense | (513) | | | (548) | | | (1,395) | | | (1,579) | |
Other income (expense) | 3,286 | | | (2,382) | | | 1,085 | | | 17,290 | |
Total other income (expense) | 4,308 | | | (2,611) | | | 4,551 | | | 16,161 | |
Loss before income tax benefit (expense) | (25,414) | | | (28,087) | | | (95,970) | | | (95,545) | |
Income tax benefit (expense) | 43 | | | 627 | | | (53) | | | 265 | |
Net loss | (25,371) | | | (27,460) | | | (96,023) | | | (95,280) | |
Net loss attributable to noncontrolling interest in subsidiaries | (920) | | | (103) | | | (1,770) | | | (697) | |
Net loss attributable to Sharecare, Inc. | $ | (24,451) | | | $ | (27,357) | | | $ | (94,253) | | | $ | (94,583) | |
| | | | | | | |
Net loss per share attributable to common stockholders, basic and diluted | $ | (0.07) | | | $ | (0.08) | | | $ | (0.27) | | | $ | (0.27) | |
Weighted-average common shares outstanding, basic and diluted | 351,519,172 | | | 349,615,224 | | | 352,845,500 | | | 347,232,210 | |
| | | | | | | |
Net loss | $ | (25,371) | | | $ | (27,460) | | | $ | (96,023) | | | $ | (95,280) | |
Other comprehensive loss adjustments: | | | | | | | |
Foreign currency translation | (432) | | | (1,032) | | | 64 | | | (2,007) | |
Comprehensive loss | (25,803) | | | (28,492) | | | (95,959) | | | (97,287) | |
Comprehensive loss attributable to noncontrolling interest in subsidiaries | (913) | | | (139) | | | (1,691) | | | (599) | |
Comprehensive loss attributable to Sharecare, Inc. | $ | (24,890) | | | $ | (28,353) | | | $ | (94,268) | | | $ | (96,688) | |
The accompanying notes are an integral part of these consolidated financial statements.
SHARECARE, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
(In thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Redeemable Convertible Preferred Stock | | | Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Deficit | | Noncontrolling Interest | | Total Stockholders’ Equity (Deficit) |
| Shares | | Amount | | | Shares | | Amount | | | | | |
Balance at December 31, 2022 | | 5,000,000 | | | $ | 58,205 | | | | 354,463,620 | | $ | 35 | | $ | 1,120,024 | | | $ | (2,794) | | | $ | (595,820) | | | $ | 1,155 | | | $ | 522,600 | |
Stock options exercised | | — | | | — | | | | 281,042 | | — | | 282 | | | — | | | — | | | — | | | 282 | |
Common stock issued upon vesting of restricted stock units | | — | | | — | | | | 1,759,615 | | — | | — | | | — | | | — | | | — | | | — | |
Issuance of warrants in connection with debt and revenue arrangements | | — | | | — | | | | — | | — | | 14 | | | — | | | — | | | — | | | 14 | |
Cumulative effect of adopting ASU 2016-13 | | — | | | — | | | | — | | — | | — | | | — | | | (1,055) | | | — | | | (1,055) | |
Share-based compensation | | — | | | — | | | | — | | — | | 10,406 | | | — | | | — | | | — | | | 10,406 | |
Net income (loss) attributable to noncontrolling interest in subsidiaries | | — | | | — | | | | — | | — | | — | | | — | | | — | | | (346) | | | (346) | |
Currency translation adjustment | | — | | | — | | | | — | | — | | — | | | 250 | | | — | | | 57 | | | 307 | |
Repurchased shares of common stock related to exercise of employee stock options | | — | | | — | | | | (214,984) | | — | | (396) | | | — | | | — | | | — | | | (396) | |
Net income (loss) attributable to Sharecare, Inc. | | — | | | — | | | | — | | — | | — | | | — | | | (34,659) | | | — | | | (34,659) | |
Other | | — | | | — | | | | — | | — | | | (131) | | | — | | | — | | | — | | | (131) | |
Balance at March 31, 2023 | | 5,000,000 | | | $ | 58,205 | | | | 356,289,293 | | | $ | 35 | | | $ | 1,130,199 | | | $ | (2,544) | | | $ | (631,534) | | | $ | 866 | | | $ | 497,022 | |
Stock options exercised | | — | | | — | | | | 188,023 | | — | | 170 | | | — | | | — | | | — | | | 170 | |
Common stock issued upon vesting of restricted stock units | | — | | | — | | | | 2,013,098 | | — | | — | | | — | | | — | | | — | | | — | |
Issuance of warrants in connection with debt and revenue arrangements | | — | | | — | | | | — | | — | | 14 | | | — | | | — | | | — | | | 14 | |
Share-based compensation | | — | | | — | | | | — | | — | | 12,329 | | | — | | | — | | | — | | | 12,329 | |
Net income (loss) attributable to non-controlling interest in subsidiaries | | — | | | — | | | | — | | — | | — | | | — | | | — | | | (504) | | | (504) | |
Currency translation adjustment | | — | | | — | | | | — | | — | | — | | | 174 | | | — | | | 15 | | | 189 | |
Taxes paid related to net share settlement of equity awards | | — | | | — | | | | (346,450) | | — | | (511) | | | — | | | — | | | — | | | (511) | |
Shares repurchased | | — | | | — | | | | (1,550,000) | | — | | (2,607) | | | — | | | — | | | — | | | (2,607) | |
Net income (loss) attributable to Sharecare, Inc. | | — | | | — | | | | — | | — | | — | | | — | | | (35,143) | | | — | | | (35,143) | |
Balance at June 30, 2023 | | 5,000,000 | | | $ | 58,205 | | | | 356,593,964 | | | $ | 35 | | | $ | 1,139,594 | | | $ | (2,370) | | | $ | (666,677) | | | $ | 377 | | | $ | 470,959 | |
Stock options exercised | | — | | | — | | | | 52,120 | | — | | 66 | | | — | | | — | | | — | | | 66 | |
Common stock issued upon vesting of restricted stock units | | — | | | — | | | | 1,581,903 | | — | | — | | | — | | | — | | | — | | | — | |
Issuance of warrants in connection with debt and revenue arrangements | | — | | | — | | | | — | | — | | 10 | | | — | | | — | | | — | | | 10 | |
Share-based compensation | | — | | | — | | | | — | | — | | 13,405 | | | — | | | — | | | — | | | 13,405 | |
Net income (loss) attributable to non-controlling interest in subsidiaries | | — | | | — | | | | — | | — | | — | | | — | | | — | | | (920) | | | (920) | |
Currency translation adjustment | | — | | | — | | | | — | | — | | — | | | (439) | | | — | | | 7 | | | (432) | |
Taxes paid related to net share settlement of equity awards | | — | | | — | | | | (321,306) | | — | | (403) | | | — | | | — | | | — | | | (403) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Shares repurchased | | — | | | — | | | | (5,893,035) | | — | | (6,637) | | | — | | | — | | | — | | | (6,637) | |
Net income (loss) attributable to Sharecare, Inc. | | — | | | — | | | | — | | — | | — | | | — | | | (24,451) | | | — | | | (24,451) | |
Balance at September 30, 2023 | | 5,000,000 | | | $ | 58,205 | | | | 352,013,646 | | | $ | 35 | | | $ | 1,146,035 | | | $ | (2,809) | | | $ | (691,128) | | | $ | (536) | | | $ | 451,597 | |
The accompanying notes are an integral part of these consolidated financial statements.
SHARECARE, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
(In thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Redeemable Convertible Preferred Stock | | | Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Noncontrolling Interest | | Total Stockholders’ Equity (Deficit) |
| Shares | | Amount | | | Shares | | Amount | | | | | |
Balance at December 31, 2021 | | 5,000,000 | | | $ | 58,205 | | | | 345,788,707 | | | $ | 35 | | | $ | 1,042,164 | | | $ | (2,061) | | | $ | (477,113) | | | $ | 1,811 | | | $ | 564,836 | |
Stock options exercised | | — | | | — | | | | 2,414,986 | | — | | 2,337 | | | — | | | — | | | — | | | 2,337 | |
Common stock issued upon vesting of restricted stock units | | — | | | — | | | | 73,617 | | — | | — | | | — | | | — | | | — | | | — | |
Issuance of warrants in connection with debt and revenue arrangements | | — | | | — | | | | – | | — | | 19 | | | — | | | — | | | — | | | 19 | |
Issuance of stock for WhitehatAI earnout | | — | | | — | | | | 132,587 | | — | | — | | | — | | | — | | | — | | | — | |
Issuance of stock for doc.ai escrow shares | | — | | | — | | | | 677,680 | | — | | — | | | — | | | — | | | — | | | — | |
Share-based compensation | | — | | | — | | | | – | | — | | 33,681 | | | — | | | — | | | — | | | 33,681 | |
Net income (loss) attributable to noncontrolling interest in subsidiaries | | — | | | — | | | | – | | — | | — | | | — | | | — | | | (98) | | | (98) | |
Currency translation adjustment | | — | | | — | | | | – | | — | | — | | | (69) | | | — | | | 300 | | | 231 | |
Net income (loss) attributable to Sharecare, Inc. | | — | | | — | | | | – | | — | | | — | | | — | | | (38,201) | | | — | | | (38,201) | |
Other | | — | | | — | | | | (5,097) | | | — | | | — | | | — | | | — | | | — | | | — | |
Balance at March 31, 2022 | | 5,000,000 | | | $ | 58,205 | | | | 349,082,480 | | | $ | 35 | | | $ | 1,078,201 | | | $ | (2,130) | | | $ | (515,314) | | | $ | 2,013 | | | $ | 562,805 | |
Stock options exercised | | — | | | — | | | | 2,497,188 | | — | | 2,658 | | | — | | | — | | | — | | | 2,658 | |
Common stock issued upon vesting of restricted stock units | | — | | | — | | | | 346,698 | | — | | — | | | — | | | — | | | — | | | — | |
Issuance of warrants in connection with debt and revenue arrangements | | — | | | — | | | | — | | — | | 14 | | | — | | | — | | | — | | | 14 | |
Share-based compensation | | — | | | — | | | | — | | — | | 18,558 | | | — | | | — | | | — | | | 18,558 | |
Net income (loss) attributable to noncontrolling interest in subsidiaries | | — | | | — | | | | — | | — | | — | | | — | | | — | | | (496) | | | (496) | |
Currency translation adjustment | | — | | | — | | | | — | | — | | — | | | (1,040) | | | — | | | (166) | | | (1,206) | |
Net income (loss) attributable to Sharecare, Inc. | | — | | | — | | | | — | | — | | — | | | — | | | (29,025) | | | — | | | (29,025) | |
CareLinx working capital adjustment | | — | | | — | | | | — | | | — | | | (659) | | | — | | | — | | | — | | | (659) | |
Balance at June 30, 2022 | | 5,000,000 | | | $ | 58,205 | | | | 351,926,366 | | | $ | 35 | | | $ | 1,098,772 | | | $ | (3,170) | | | $ | (544,339) | | | $ | 1,351 | | | $ | 552,649 | |
Stock options exercised | | — | | | — | | | | 1,301,650 | | — | | 1,315 | | | — | | | — | | | — | | | 1,315 | |
Common stock issued upon vesting of restricted stock units | | — | | | — | | | | 306,326 | | — | | — | | | — | | | — | | | — | | | — | |
Issuance of warrants in connection with debt and revenue arrangements | | — | | | — | | | | — | | — | | 14 | | | — | | | — | | | — | | | 14 | |
Share-based compensation | | — | | | — | | | | — | | — | | 10,702 | | | — | | | — | | | — | | | 10,702 | |
Net income (loss) attributable to noncontrolling interest in subsidiaries | | — | | | — | | | | — | | — | | — | | | — | | | — | | | (103) | | | (103) | |
Currency translation adjustment | | — | | | — | | | | — | | — | | — | | | (996) | | | — | | | (36) | | | (1,032) | |
Net income (loss) attributable to Sharecare, Inc. | | — | | | — | | | | — | | — | | — | | | — | | | (27,357) | | | — | | | (27,357) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CareLinx working capital adjustment | | — | | | — | | | | (92,495) | | | — | | | — | | | — | | | — | | | — | | | — | |
Balance at September 30, 2022 | | 5,000,000 | | | $ | 58,205 | | | | 353,441,847 | | | $ | 35 | | | $ | 1,110,803 | | | $ | (4,166) | | | $ | (571,696) | | | $ | 1,212 | | | $ | 536,188 | |
The accompanying notes are an integral part of these consolidated financial statements.
SHARECARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands, except share and per share amounts)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
Cash flows from operating activities: | | | |
Net loss | $ | (96,023) | | | $ | (95,280) | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | |
Depreciation and amortization expense | 43,578 | | | 32,831 | |
Non-cash interest expense | 480 | | | 733 | |
Amortization of contract liabilities | (1,353) | | | (3,285) | |
Accretion of contract liabilities | 204 | | | 660 | |
Lease right-of-use assets expense | 2,545 | | | 4,587 | |
Change in fair value of warrant liability and contingent consideration | (3,346) | | | (15,765) | |
Amortization of non-cash payment for research and development | 3,570 | | | 1,268 | |
Share-based compensation | 35,322 | | | 61,619 | |
Deferred income taxes | 64 | | | (708) | |
Other | 2,934 | | | 2,271 | |
Changes in operating assets and liabilities: | | | |
Accounts receivable, net | (11,841) | | | 1,686 | |
Prepaid expenses and other assets | (739) | | | (4,219) | |
Accounts payable and accrued expenses | 5,144 | | | (26,539) | |
Operating lease liabilities | (458) | | | (1,377) | |
Deferred revenue | (3,003) | | | (648) | |
Net cash used in operating activities | (22,922) | | | (42,166) | |
Cash flows from investing activities: | | | |
Purchases of property and equipment | (1,397) | | | (1,909) | |
Capitalized internal-use software costs | (21,487) | | | (29,915) | |
Net cash used in investing activities | (22,884) | | | (31,824) | |
Cash flows from financing activities: | | | |
Payments for shares repurchased | (9,360) | | | — | |
Proceeds from exercise of common stock options | 1,438 | | | 6,310 | |
Payments on financing lease obligations | (835) | | | (542) | |
Net cash (used in) provided by financing activities | (8,757) | | | 5,768 | |
Effect of exchange rates on cash and cash equivalents | 63 | | | (319) | |
Net decrease in cash and cash equivalents | (54,500) | | | (68,541) | |
Cash and cash equivalents at beginning of period | 182,508 | | | 271,105 | |
Cash and cash equivalents at end of period | $ | 128,008 | | | $ | 202,564 | |
Supplemental disclosure of cash flow information: | | | |
Cash paid for interest | $ | 605 | | | $ | 836 | |
Cash paid for income taxes | $ | 32 | | | $ | 23 | |
Non-cash investing and financing activities: | | | |
CareLinx working capital adjustment | $ | — | | | $ | 659 | |
Supplemental cash flow information related to leases: | | | |
Cash paid for amounts included in the measurement of lease liabilities | $ | 2,676 | | | $ | 5,280 | |
Assets obtained in exchange for lease obligations | $ | 1,812 | | | $ | 3,254 | |
The accompanying notes are an integral part of these consolidated financial statements.
Sharecare, Inc.
Notes to Unaudited Consolidated Financial Statements
(Unaudited)
1.Nature of Business and Significant Accounting Policies
Nature of Business
Sharecare, Inc. (“Sharecare” or the “Company”) was founded in 2009 to develop an interactive health and wellness platform and began operations in October 2010. Sharecare’s virtual health platform is designed to help people, patients, providers, employers, health plans, government organizations, and communities optimize individual and population-wide well-being by driving positive behavior change. The platform is designed to connect each stakeholder to the health management tools they need to drive engagement, establish sustained participation, increase satisfaction, reduce costs, and improve outcomes. Sharecare bridges scientifically validated clinical programs with content to deliver a personalized experience for its members, beginning with the RealAge® test, Sharecare’s health risk assessment that shows members the true age of their body, capitalizing on people’s innate curiosity of how “young” they are to draw them into the platform. The Sharecare platform provides members with a personalized action plan to guide and educate them on the habits and behaviors making the biggest impact, both positive and negative, on their RealAge. Sharecare provides the resources members need to manage their health through lifestyle or disease management and coaching programs, such as diabetes management and smoking cessation, well-being solutions, such as financial health and anxiety management; care navigation tools such as find-a-doctor, prescription savings, clinical decision support, medical records, home health, and more. Sharecare recently launched Sharecare+, a digital-first, comprehensive advocacy solution designed to deliver value through benefits navigation, clinical engagement, virtual care, and chronic case and utilization management. Additionally, Sharecare provides secure, automated release of information, audit and business consulting services to streamline the medical records process for medical facilities. Sharecare delivers value via its provider, enterprise, and life sciences channels.
Basis of Presentation and Consolidation Policy
The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) as determined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and pursuant to the regulations of the U.S. Securities and Exchange Commission (“SEC”). The consolidated financial statements include the accounts of Sharecare, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Segment Information
The Company operates as a single operating segment. The Company’s chief operating decision maker is its chief executive officer, who reviews financial information presented on a consolidated basis for purposes of making operating decisions, assessing financial performance and allocating resources for the entire company.
Unaudited Interim Financial Information
The accompanying interim Consolidated Balance Sheet as of September 30, 2023 and the Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2023 and 2022, Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for each of the three month periods within the nine months ended September 30, 2023 and 2022, and Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 are unaudited. These unaudited interim consolidated financial statements are presented in accordance with the rules and regulations of the SEC and do not include all disclosures normally required in annual consolidated financial statements prepared in accordance with U.S. GAAP. In management’s opinion, the unaudited interim consolidated financial statements have been prepared on the same basis as the annual financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of September 30, 2023, the Company’s consolidated results of operations for the three and nine months ended September 30, 2023 and 2022, and cash flows for the nine months ended September 30, 2023 and 2022. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the full fiscal year or any other future interim or annual periods. The information contained within the unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s annual financial statements for the year ended December 31, 2022.
Sharecare, Inc.
Notes to Unaudited Consolidated Financial Statements
(Unaudited)
Use of Estimates
The preparation of these unaudited interim consolidated financial statements in conformity with GAAP requires the use of management estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates and assumptions reflected in these consolidated financial statements include revenue recognition and income taxes. The Company bases its estimates on historical experience, known trends, and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates, as there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results may differ from those estimates or assumptions.
Concentration of Credit Risk
The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company’s cash deposits are held with well-known financial institutions and may exceed federally insured limits. The Company grants credit to its customers in the normal course of business and generally requires no collateral from its customers.
Fair Value Measurements
The carrying value of the Company’s financial instruments, including cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximates fair value due to their short-term nature.
The Company measures financial assets and liabilities at fair value at each reporting period using a fair value hierarchy that requires management to maximize the use of observable inputs and minimize the use of unobservable inputs. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
•Level 1 — Quoted prices in active markets for identical assets or liabilities
•Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities
•Level 3 — Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability
Assets and Liabilities that are Measured at Fair Value on a Non-recurring Basis
Assets and liabilities that may be measured at fair value on a non-recurring basis relate primarily to the Company’s tangible fixed assets and other intangible assets. For these assets, the Company does not periodically adjust the carrying value to fair value except in the event of an impairment. When the Company determines that an impairment has occurred, the carrying value of the asset is reduced to its fair value and an impairment charge is recorded within operating loss in the Consolidated Statements of Operations and Comprehensive Loss.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable, net, consists of trade accounts receivable which are due under normal trade terms requiring payment, typically within 45 days from the invoice date. The allowance for doubtful accounts is based on management's estimate for expected credit losses for outstanding trade accounts receivable and is recorded as an offset to accounts receivable. Changes in the allowance for doubtful accounts are classified as general and administrative expense in the Consolidated Statements of Operations and Comprehensive Loss. The Company determines expected credit losses based on historical write-off experience, an analysis of the aging of outstanding receivables, customer payment patterns, and adjusts based on expectations of changes in macro-economic conditions and customer-specific information that may impact the collectability of outstanding receivables. The Company reassesses the adequacy of the allowance for doubtful accounts each reporting period.
Sharecare, Inc.
Notes to Unaudited Consolidated Financial Statements
(Unaudited)
The changes in the allowance for doubtful accounts are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Allowance for doubtful accounts – beginning balance | $ | 8,145 | | | $ | 7,812 | | | $ | 7,197 | | | $ | 6,212 | |
Provision for doubtful accounts | 724 | | | 755 | | | 2,811 | | | 2,468 | |
Amounts written off and other adjustments | (81) | | | (1,727) | | | (1,220) | | | (1,840) | |
Allowance for doubtful accounts – ending balance | $ | 8,788 | | | $ | 6,840 | | | $ | 8,788 | | | $ | 6,840 | |
Contract Liabilities
In connection with certain acquisitions, the Company has recognized current and noncurrent contract liabilities, representing off-market values associated with certain wellness program royalty agreements (amortization will continue through 2023). Amortization of these contract liabilities was $0.5 million for three months ended September 30, 2023, all of which was included within cost of revenues in the Consolidated Statements of Operations and Comprehensive Loss. Amortization of these contract liabilities was $1.1 million for three months ended September 30, 2022, of which $0.4 million was included within cost of revenues and $0.7 million was included in general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Loss.
Amortization of these contract liabilities was $1.4 million for nine months ended September 30, 2023, all of which was included within cost of revenues in the Consolidated Statements of Operations and Comprehensive Loss. Amortization of these contract liabilities was $3.3 million for nine months ended September 30, 2022, of which $1.3 million was included within cost of revenues and $2.0 million was included in general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Loss. Additionally, the Company has recognized certain contract liabilities due to a related party in the amount of $17.4 million, related to service agreements, which is included in accrued expenses and other current liabilities in the Consolidated Balance Sheets.
Deferred Revenue
The Company records contract liabilities, which consist of deferred revenue and contract billings in excess of earned revenue, pursuant to ASC 606.
Deferred revenues arise from contracts that permit upfront billing and the collection of fees covering the entire contractual service period, which is generally six to twelve months and in advance of the satisfaction of the performance obligations identified within the related contract. As of September 30, 2023 and December 31, 2022, such fees were $6.0 million and $9.0 million, respectively. The Company recognized $0.5 million of revenue during the three months ended September 30, 2023 that was included in deferred revenue at December 31, 2022. The Company recognized $3.3 million of revenue during the nine months ended September 30, 2023 that was included in deferred revenue at December 31, 2022.
Revenue Recognition
Performance-Based Revenue
Certain contracts place a portion of fees at risk based on achieving certain performance metrics, such as customer cost savings, and/or clinical outcomes improvements (performance-based). The Company uses the most likely amount method to estimate variable consideration for these performance guarantees. The Company includes in the transaction price some, or all, of a variable consideration amount only to the extent that it is not probable that a significant reversal in the amount of cumulative revenue recognized will occur when the uncertainty associated with the variable consideration is subsequently resolved. The Company utilizes customer data to measure performance. Performance-based fees subject to refund that the Company has not recognized as revenues are generally due to either: (1) data from the customer is insufficient or incomplete to measure performance; or (2) interim performance measures indicate that it is not probable that the Company will meet the relevant performance target(s). As of September 30, 2023 and December 31, 2022, such fees included within deferred revenue were $5.4 million and $4.4 million, respectively.
In the event that performance measures are not met by the end of the measurement period, typically one year, some or all of the performance-based fees are required to be refunded. During the settlement process under a contract, which generally
Sharecare, Inc.
Notes to Unaudited Consolidated Financial Statements
(Unaudited)
occurs six to eight months after the end of a contract year, performance-based fees are reconciled and settled. Approximately $1.1 million and $1.4 million of revenues recognized during the three months ended September 30, 2023 and 2022, respectively, were performance-based. During the three months ended September 30, 2023, $0.1 million of revenue was recognized, which related to services provided prior to December 31, 2022.
Approximately $3.4 million and $5.8 million of revenues recognized during the nine months ended September 30, 2023 and 2022, respectively, were performance-based. During the nine months ended September 30, 2023, $0.7 million was recognized in revenue that related to services provided prior to December 31, 2022. As of September 30, 2023 and 2022, the cumulative amount of performance-based revenues that had met the criteria for recognition and had been recognized but had not yet been settled with customers, totaled $4.6 million and $6.5 million, respectively.
Remaining Performance Obligations
Remaining performance obligations represent contracted revenues that are non-cancellable and have not yet been recognized due to unsatisfied or partially satisfied performance obligations. This includes deferred revenues and amounts that will be invoiced and recognized as revenues in future periods. As of September 30, 2023, future estimated revenue related to performance obligations with terms of more than one year that are unsatisfied or partially unsatisfied at the end of the reporting period was approximately $81.2 million. As of September 30, 2023, the Company expects to recognize revenue on approximately 84% of these unsatisfied performance obligations over the following 24 months and the remainder thereafter.
Disaggregated Revenue
The following table presents the Company’s revenues disaggregated by revenue source (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Enterprise | $ | 60,216 | | | $ | 65,223 | | | $ | 194,460 | | | $ | 184,882 | |
Provider | 32,978 | | | 28,712 | | | 91,143 | | | 79,831 | |
Life Sciences | 20,133 | | | 20,684 | | | 54,372 | | | 54,440 | |
Total Revenue | $ | 113,327 | | | $ | 114,619 | | | $ | 339,975 | | | $ | 319,153 | |
Other Income (Expense)
For the three and nine months ended September 30, 2023 and 2022, other income (expense) consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Re-measurement of contingent consideration | $ | 520 | | | $ | (2,121) | | | $ | 1,428 | | | $ | 9,131 | |
Re-measurement of warrant liabilities | 2,784 | | | (856) | | | 1,918 | | | 6,634 | |
Other | (18) | | | 595 | | | (2,261) | | | 1,525 | |
Total other income (expense) | $ | 3,286 | | | $ | (2,382) | | | $ | 1,085 | | | $ | 17,290 | |
Sharecare, Inc.
Notes to Unaudited Consolidated Financial Statements
(Unaudited)
Recently Adopted Accounting Standards
As an emerging growth company (“EGC”), the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are applicable to private companies (that is, those that have not had a registration statement declared effective under the Securities Act of 1933, as amended (the “Securities Act”), or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company has elected to use this extended transition period under the JOBS Act until such time as the Company is no longer considered to be an EGC. The adoption dates discussed below reflect this election.
Credit Losses. In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which is intended to improve the timing of recognition, and enhance the accounting and disclosure, of credit losses on financial assets. This update modified the existing accounting guidance related to the impairment evaluation for available-for-sale debt securities, reinsurance recoverables, and accounts receivable and could result in the creation of an allowance for credit losses as a contra-asset account. The ASU requires a cumulative-effect change to retained earnings (accumulated deficit) in the period of adoption, to the extent applicable. The amendments in ASU 2016-13 are effective for fiscal years beginning after December 15, 2022, including interim periods within the fiscal year. The Company adopted ASU 2016-13 on January 1, 2023, and the adoption did not have a material impact on the Company’s unaudited interim consolidated financial statements, with the primary impact being the increase in allowance for doubtful accounts related to our trade accounts receivable. The adoption adjustment was recorded to accumulated deficit, as shown in the Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit).
2. Fair Value Measurements
The Company’s financial instruments consist of cash equivalents, accounts receivable, accounts payable, accrued liabilities, warrant liabilities, and contingent consideration liabilities. Cash equivalents are comprised of money market funds stated at amortized cost, which approximates fair value at the balance sheet dates, due to the short period of time to maturity. Accounts receivable, accounts payable, and accrued liabilities are stated at their carrying value, which approximates fair value due to the short time to the expected settlement date. The warrant liabilities and contingent consideration liabilities are recorded at estimated fair value.
The following tables present the fair value hierarchy for assets and liabilities measured at fair value as of September 30, 2023 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2023 |
| Level 1 | | Level 2 | | Level 3 | | Total Fair Value |
Cash equivalents | | | | | | | |
Money market funds | $ | 111,216 | | | $ | — | | | $ | — | | | $ | 111,216 | |
Total cash equivalents at fair value | $ | 111,216 | | | $ | — | | | $ | — | | | $ | 111,216 | |
| | | | | | | |
Liabilities | | | | | | | |
Warrant liabilities | $ | 523 | | | $ | — | | | $ | — | | | $ | 523 | |
Contingent consideration – other liabilities | — | | | — | | | 451 | | | 451 | |
Total liabilities at fair value | $ | 523 | | | $ | — | | | $ | 451 | | | $ | 974 | |
The warrants issued during the initial public offering by Falcon Capital Acquisition Corp. “FCAC” and the warrants issued by FCAC simultaneously with its initial public offering in a private placement, are both classified within Level 1 as they are publicly traded and have an observable market price in an active market. Additionally, the warrant liabilities are exercisable for one share of common stock at an exercise price of $11.50.
Contingent consideration is classified within Level 3 as it is valued using certain unobservable inputs. The fair value of the contingent consideration is estimated based on the Company’s stock price and number of shares expected to be issued
Sharecare, Inc.
Notes to Unaudited Consolidated Financial Statements
(Unaudited)
related to acquisitions in prior years and are estimated using a Monte Carlo simulation with inputs for the Company’s stock price, expected volatility, risk-free rate, first and second earnout hurdles and expected term.
The following is a schedule of changes to the contingent consideration — other liabilities classified as Level 3 for the periods presented (in thousands):
| | | | | |
December 31, 2022 | $ | 1,879 | |
Re-measurement of contingent consideration | (1,428) | |
September 30, 2023 | $ | 451 | |
3. Balance Sheet Components
Accrued Expenses and Other Current Liabilities
As of September 30, 2023 and December 31, 2022, accrued expenses and other current liabilities consisted of the following (in thousands):
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
Accrued expenses | $ | 16,268 | | | $ | 18,526 | |
Accrued compensation | 11,449 | | | 23,762 | |
Accrued media costs | 3,483 | | | 4,515 | |
Accrued taxes | 1,634 | | | 1,602 | |
Operating lease liabilities, current | 2,043 | | | 2,941 | |
Contract liabilities due to a related party, current | 17,353 | | | 10,000 | |
Accrued expenses due to a related party | 23,941 | | | 18,011 | |
Accrued other | 1,389 | | | 2,270 | |
Total accrued expenses and other current liabilities | $ | 77,560 | | | $ | 81,627 | |
Sharecare, Inc.
Notes to Unaudited Consolidated Financial Statements
(Unaudited)
4. Goodwill and Other Intangible Assets
Intangible assets and the related accumulated amortization for each class of intangible asset as of September 30, 2023 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2023 |
| Cost | | Accumulated Amortization | | Net | | Weighted Average Remaining Life |
Definite-lived, intangible assets | | | | | | | |
Technology – features/content | $ | 65,793 | | | $ | (26,366) | | | $ | 39,427 | | | 8.3 |
Trade name | 3,549 | | | (1,868) | | | 1,681 | | | 7.9 |
Customer relationships | 77,849 | | | (38,112) | | | 39,737 | | | 9.0 |
Internal-use software | 177,733 | | | (120,362) | | | 57,371 | | | 2.0 |
Total definite-lived, intangible assets | $ | 324,924 | | | $ | (186,708) | | | $ | 138,216 | | | |
| | | | | | | |
Intangible assets not subject to amortization | | | | | | | |
Internal-use software projects in process | $ | 3,572 | | | $ | — | | | $ | 3,572 | | | |
Indefinite-lived, trade names | 5,030 | | | — | | | 5,030 | | | |
Total intangible assets not subject to amortization | 8,602 | | | — | | | 8,602 | | | |
Total intangible assets | $ | 333,526 | | | $ | (186,708) | | | $ | 146,818 | | | |
The following tables set forth the changes in the carrying amount of the Company’s goodwill for the period presented (in thousands):
| | | | | |
December 31, 2022 | $ | 191,817 | |
Foreign currency translation adjustment | (114) | |
September 30, 2023 | $ | 191,703 | |
Goodwill and intangible assets deemed to have indefinite lives are not amortized but are subjected to annual tests of impairment. The Company tests goodwill and indefinite-lived intangible assets for impairment annually in the fourth quarter and between annual tests if an event occurs or circumstances change that would indicate that it is more likely than not that the carrying amount may be impaired. The Company initially evaluates qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment is not conclusive, a quantitative assessment of the fair value of a reporting unit is performed to test goodwill for impairment using a combination of the income and market approaches. There have been no impairments of goodwill since the Company’s inception.
As a result of the sustained decline in the Company’s stock price and associated market capitalization, the Company performed an impairment test during the third quarter of 2023. The fair value of the reporting units for goodwill impairment testing was determined using both an income approach and market approach. The income approach was based on discounted projected future (debt-free) cash flows for each reporting unit. The discount rates applied to these cash flows were based on the weighted average cost of capital for each reporting unit, which takes market participant assumptions into consideration. For the market approach, we used both the guideline company and similar transaction methods. The guideline company method analyzes market multiples of revenue and EBITDA for a group of comparable public companies. Under the similar transactions method, valuation multiples are calculated utilizing actual transaction prices and revenue and EBITDA data from target companies deemed similar to the reporting unit. As a result of the interim test, the fair values of each of our reporting units exceeded their respective book values in excess of approximately 10%, and the Company determined there was no impairment. An increase of 100 basis points in the weighted average cost of capital or a decrease of 100 basis points in annual forecasted revenues would have resulted in a 3% and 7% decline in the fair value, respectively of our reporting units which would not have resulted in impairment.
Sharecare, Inc.
Notes to Unaudited Consolidated Financial Statements
(Unaudited)
Amortization expense for intangible assets during the three months ended September 30, 2023 and 2022 totaled $13.9 million and $11.2 million, respectively. Amortization expense for intangible assets during the nine months ended September 30, 2023 and 2022 totaled $41.4 million and $30.5 million, respectively. Amortization expense is included in depreciation and amortization in the Consolidated Statements of Operations and Comprehensive Loss.
The following is a schedule of estimated future amortization expense for intangible assets as of September 30, 2023 (in thousands):
| | | | | |
Year ending December 31: | |
Remainder of 2023 | $ | 13,393 | |
2024 | 45,302 | |
2025 | 29,349 | |
2026 | 16,048 | |
2027 | 10,816 | |
Thereafter | 23,308 | |
Total | $ | 138,216 | |
5. Income Taxes
As a result of the Company’s history of net operating losses, the Company has provided for a full valuation allowance against its deferred tax assets, with the exception of its German and French operations. For the three months ended September 30, 2023, the Company recognized income tax benefit of less than $0.1 million, primarily due to tax on foreign income. For the three months ended September 30, 2022, the Company recognized an income tax benefit of $0.6 million, primarily due to tax on foreign income and a reduction in the U.S. valuation allowance related to an acquisition. For the nine months ended September 30, 2023, the Company recognized income tax expense of less than $0.1 million, primarily due to state income tax. For the nine months ended September 30, 2022, the Company recognized income tax benefit of $0.3 million, primarily due to tax on foreign income and a reduction in the U.S. valuation allowance related to an acquisition.
6. Common Stock and Stockholders’ Equity
Warrants
In connection with debt and equity financings and certain partnership arrangements, the Company may issue warrants. Warrants classified as liabilities generally vest immediately and are exercisable upon issuance and have an expiration of seven years from the date of issuance. Warrants classified as equity generally vest after three years from the date of issuance and have an expiration of seven years from the date of issuance.
As of September 30, 2023, the following warrants to purchase common stock were issued and outstanding:
| | | | | | | | | | | | | | |
Classification | | Warrants Outstanding | | Exercise Price per Share |
Equity | | 1,171,652 | | | $4.21 - $5.61 |
Liability | | 17,433,334 | | | $11.50 |
The Company has also entered into, and may in the future enter into, contractual arrangements with certain customers and other parties and earnout arrangements in connection with acquisitions that, in each case, provide for the issuance of warrants and/or common stock upon the achievement of specified milestones. As of September 30, 2023, these agreements provide for the issuance of up to 5,182,109 shares of common stock and 8,194,627 warrants to purchase shares of common stock. With respect to these arrangements, there were 107,476 warrants earned but not issued as of September 30, 2023.
Sharecare, Inc.
Notes to Unaudited Consolidated Financial Statements
(Unaudited)
Share-based Payments
Stock option and restricted stock unit activity, prices, and values during the nine months ended September 30, 2023 are as follows (in thousands, except share and per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Options Outstanding | | Restricted Stock Units |
| Number of Options | | Weighted- Average Exercise Price | | Weighted Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value (in thousands) | | Number of Plan shares outstanding | Weighted-Average Grant Date Fair Value per share |
Outstanding as of December 31, 2022 | 103,557,247 | | $ | 2.88 | | | 6.88 | | $ | 25,753 | | | 16,050,794 | | $ | 3.21 | |
Granted | — | | | — | | | | | | | 39,420,993 | | $ | 1.83 | |
Exercised/Released | (521,185) | | $ | 0.99 | | | | | $ | 57 | | | (5,354,616) | | $ | 2.72 | |
Cancelled/Forfeited | (6,116,595) | | $ | 2.07 | | | | | | | (3,414,923) | | $ | 3.15 | |
Outstanding as of September 30, 2023 | 96,919,467 | | $ | 2.99 | | | 6.17 | | $ | 360 | | | 46,702,248 | | $ | 2.11 | |
Vested and/or exercisable as of September 30, 2023 | 79,631,937 | | $ | 2.43 | | | 5.89 | | $ | 360 | | | — | | $ | — | |
Vested and/or exercisable as of December 31, 2022 | 75,439,358 | | $ | 1.96 | | | 6.50 | | $ | 22,030 | | | — | | $ | — | |
Vested but unissued restricted stock units as of September 30, 2023 and December 31, 2022 were immaterial.
Share-based compensation expense for employee and nonemployee options and restricted stock units included in the Consolidated Statements of Operations and Comprehensive Loss is as follows for the three and nine months ended September 30, 2023 and 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Cost of revenues | $ | 213 | | | $ | 83 | | | $ | 512 | | | $ | 309 | |
Sales and marketing | 1,814 | | | 300 | | | 4,089 | | | 2,826 | |
Product and technology | 53 | | | 1,413 | | | 2,276 | | | 3,176 | |
General and administrative | 11,126 | | | 8,535 | | | 28,445 | | | 55,308 | |
Total share-based compensation expense | $ | 13,206 | | | $ | 10,331 | | | $ | 35,322 | | | $ | 61,619 | |
Additionally, share-based compensation costs, reflected within additional paid-in capital in the Consolidated Statement of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the three months ended September 30, 2023 and 2022, included approximately $0.2 million and $0.4 million related to capitalizable internally developed software activities, respectively. Share-based compensation, reflected within additional paid-in capital in the Consolidated Statement of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) costs for the nine months ended September 30, 2023 and 2022, included approximately $1.3 million and $1.3 million related to capitalizable internally developed software activities, respectively.
On May 31, 2023, each of the principal executive officer, principal financial officer, other named executive officers, and certain eligible employees of the Company voluntarily elected to forgo up to 25% of their cash base salary for the next 12 months, and in lieu thereof received restricted stock units (“RSUs”) with a value equal to the cash amount they elected to forego over the 12-month period. In consideration for forgoing guaranteed cash compensation, each individual will receive an additional number of RSUs with a value equal to 25% of the amount of cash salary they have elected to forgo. The RSUs were issued in June 2023 and will vest in four equal quarterly installments over the next 12 months, subject to the individual’s continued employment. The ability of the named executive officers and other eligible employees to make such election to forgo
Sharecare, Inc.
Notes to Unaudited Consolidated Financial Statements
(Unaudited)
guaranteed cash compensation and receive RSUs in lieu thereof was approved by the Compensation and Human Capital Committee of the Company’s board of directors. The unvested RSUs are classified as a liability. As of September 30, 2023, there was $0.4 million of unvested RSUs classified as a liability and recorded to accrued expenses and other current liabilities in the Consolidated Balance Sheets. As such, share-based compensation costs, reflected within additional paid-in capital in the Consolidated Statement of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the three months ended September 30, 2023 does not reflect the cost associated with these awards. Upon vesting of these RSUs, amounts will be reclassified from liability to equity.
7. Commitments and Contingencies
Legal Matters
From time to time, the Company is subject to litigation in the normal course of business. The Company is of the opinion that, based on the information presently available, the resolution of any such legal matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. The Company has accrued for losses that are both probable and estimable.
We are also party to investigations and legal disputes and losses related to certain matters that are reasonably possible, but at this time, we cannot estimate a loss or range of losses.
8. Related-Party Transactions
Sul América Serviços de Saúde S.A. (Sul América), is a customer of and owns a 49% interest in Sharecare Brasil Servicios de Consultoria, Ltda. The Company is in process of winding down the contract with this related party and plans for Sharecare Brasil Servicios de Consultoria, Ltda to cease operations by the end of the 2023. As of September 30, 2023 and December 31, 2022, $0 and $1.4 million, respectively, in receivables were outstanding with Sul América. Revenues recognized for the three month period ended September 30, 2023 and 2022 from Sul América totaled $0.4 million and $2.0 million, respectively. Revenues recognized for the nine month period ended September 30, 2023 and 2022 from Sul América totaled $3.0 million and $7.1 million, respectively.
The Series A Preferred Stock is held by a customer that also had an employee serving on the Company’s Board of Directors. During the three month period ended June 30, 2023, the board member ceased employment with the customer. Subsequent to the board member’s termination of employment with the customer, this customer was no longer considered a related party. As of September 30, 2023 and December 31, 2022, $10.6 million and $3.1 million, respectively, in receivables were outstanding from this related party. Additionally, as of September 30, 2023 and December 31, 2022, current assets included $1.2 million and $4.8 million, respectively, associated with this related party related to the amount recorded in excess of cash received which represents a non-cash payment for up front research and development costs related to the issuance of the Series A Preferred Stock. For the three months ended September 30, 2023 and 2022, the Company paid $0 and $0.5 million related to administration fees and stop-loss coverage for employee health insurance, respectively, to a related party. For the nine months ended September 30, 2023 and 2022, the Company paid $0 and $1.5 million related to administration fees and stop-loss coverage for employee health insurance, respectively. Revenues recognized for this customer for the three months ended September 30, 2023 and 2022 totaled $4.7 million and $4.9 million, respectively. Revenues recognized for this customer for the nine months ended September 30, 2023 and 2022 totaled $14.2 million and $15.3 million, respectively.
Additionally, during the third quarter of 2022, we entered into a revenue contract with the Series A Preferred Stockholder to provide patient advocacy services. Separate from the above disclosed amounts for this related party, revenues recognized related to these distinct services for the three months ended September 30, 2023 and 2022 totaled $8.9 million and $5.7 million, respectively. Revenues recognized related to these distinct services for the nine months ended September 30, 2023 and 2022 totaled $31.8 million and $5.7 million, respectively. As of September 30, 2023, there were $38.3 million in receivables, $41.3 million in accrued expenses, $0 of long-term liabilities, $1.7 million of current contract assets, and $4.6 million in long-term contract assets recorded in connection with these distinct agreements. As of December 31, 2022, there were $18.1 million in receivables, $28.0 million in accrued expenses, $6.9 million of long-term liabilities, $1.7 million of current contract assets, and $5.8 million in long-term contract assets recorded in connection with these distinct agreements. The contract assets are being amortized as a reduction of revenue over the contract term. Revenue for the three months ended September 30, 2023 and 2022, included $0.4 million and $0.2 million of amortization of such contract assets, respectively. Revenue for the nine months ended September 30, 2023 and 2022, included $1.2 million and $0.2 million of amortization of
Sharecare, Inc.
Notes to Unaudited Consolidated Financial Statements
(Unaudited)
such contract assets, respectively. Additionally, the Company acquired certain intellectual property which was determined to be distinct and recorded an intangible asset of $6.5 million and $7.9 million, as of September 30, 2023 and December 31, 2022, respectively, which is being amortized over its estimated useful life. The Company also entered into separate agreements during the third quarter of 2022 for the purchase of distinct goods and services from that customer for amounts totaling $8.4 million and $5.7 million for the three months ended September 30, 2023 and 2022, respectively, and $24.8 million and $5.7 million for the nine months ended September 30, 2023 and 2022, respectively, which are which are recorded in cost of sales for each respective period. Amounts paid under the agreements that were not determined to be distinct were recorded as a reduction of revenues as described above.
The Company has a customer that is affiliated with a member of its Board of Directors that was nominated during the first quarter of 2023. As of September 30, 2023, $1.0 million in receivables were outstanding from this related party and revenues recognized for the three and nine months ended September 30, 2023 totaled $1.0 million and $2.8 million, respectively.
9. Net Loss Per Share
Basic and diluted net loss per share attributable to common stockholders was calculated as follows (in thousands, except share and per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Numerator | | | | | | | |
Net loss | $ | (25,371) | | | $ | (27,460) | | | $ | (96,023) | | | $ | (95,280) | |
Less: Net loss attributable to noncontrolling interests in subsidiaries | (920) | | | (103) | | | (1,770) | | | (697) | |
Net loss available to common stockholders | $ | (24,451) | | | $ | (27,357) | | | $ | (94,253) | | | $ | (94,583) | |
| | | | | | | |
Denominator | | | | | | | |
Weighted-average common shares outstanding, basic and diluted | 351,519,172 | | | 349,615,224 | | | 352,845,500 | | | 347,232,210 | |
Net loss per share attributable to common stockholders, basic and diluted | $ | (0.07) | | | $ | (0.08) | | | $ | (0.27) | | | $ | (0.27) | |
The Company’s potential dilutive securities, which include stock options and restricted stock units, redeemable convertible preferred stock, and contingently issuable shares, have been excluded from the computation of diluted net loss per share for the three and nine months ended September 30, 2023 and 2022, as they are anti-dilutive and the effect would be to reduce the net loss per share. Therefore, the weighted-average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded the following potential common share equivalents presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Stock options and restricted stock units | 4,096,122 | | | 42,122,506 | | | 16,051,839 | | | 40,592,631 | |
Redeemable convertible preferred stock | 5,000,000 | | | 5,000,000 | | | 5,000,000 | | | 5,000,000 | |
Contingently issuable shares | — | | | — | | | — | | | 157,372 | |
Total | 9,096,122 | | | 47,122,506 | | | 21,051,839 | | | 45,750,003 | |
Sharecare, Inc.
Notes to Unaudited Consolidated Financial Statements
(Unaudited)
10. Subsequent Events
The Company considers events or transactions that occur after the balance sheet date, but before the consolidated financial statements are issued, to provide additional evidence relative to certain estimates or identify matters that require additional disclosures. The Company evaluated subsequent events through, November 9, 2023, the date on which the consolidated financial statements were available to be issued, noting no such material events.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results of operations of Sharecare, Inc. (for purposes of this section, “the Company,” “Sharecare,” “we,” “us” and “our”) should be read together with the Company’s audited financial statements as of and for the years ended December 31, 2022, 2021, and 2020, together with the related notes thereto, included in our Annual Report on Form 10-K filed with the SEC on March 31, 2023, and Sharecare’s unaudited interim financial statements as of September 30, 2023 and for the three and nine months ended September 30, 2023 and 2022, together with the related notes thereto, included elsewhere in this Quarterly Report on Form 10-Q. Actual results may differ materially from those contained in any forward-looking statements.
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements regarding, among other things, the plans, strategies and prospects, both business and financial, of Sharecare. These statements are based on the beliefs and assumptions of our management. Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Generally, statements that are not historical facts, including statements concerning possible or assumed future actions, business strategies, events or results of operations, are forward-looking statements. These statements may be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled,” “anticipates,” “possible,” “continue,” “might,” “potential” or “intends” or similar expressions. Forward-looking statements contained in this report include, but are not limited to, statements regarding our expectations as to:
•our business, operations and financial performance, including:
◦expectations with respect to our financial and business performance, including financial projections and business metrics and any underlying assumptions thereunder;
◦future business plans and growth opportunities, including revenue opportunities available from new or existing clients and expectations regarding the enhancement of platform capabilities and addition of new solution offerings;
◦developments and projections relating to our competitors and the digital healthcare industry;
◦the impact of rising inflation, increasing interest rates, public health emergencies such as the COVID-19 pandemic, financial institution disruptions and other macroeconomics factors on our business and the actions we may take in response thereto;
◦our expectations regarding anticipated and future partnerships or other relationships with third parties and future acquisitions;
◦our future capital requirements and sources and uses of cash, including potential share repurchases and our ability to obtain additional capital in the future and fully access our Revolving Facility; and
◦our ability to recognize performance-based revenue;
•our status as an EGC and our intention to take advantage of accommodations available to EGCs under the JOBS Act;
•our success in retaining or recruiting, or changes required in, our officers, key employees or directors, and the success of our workplace globalization efforts; and
•the other estimates and matters described in this Quarterly Reports on Form 10-Q under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
These forward-looking statements are based on information available as of the date of this report, and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Important factors could cause actual results to differ materially from those indicated or implied by forward-looking statements include, but are not limited to, those set forth in this report and in the “Risk Factors” section of our Annual Report on Form 10-K filed with the SEC on March 31, 2023. For example, the Company’s expectations regarding future performance assume business currently under contract and satisfaction by our customers of their contractual obligations under those agreements, which is not within the Company’s control. If a customer fails to satisfy its contractual obligations, actual results could be negatively impacted. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
Should one or more of these risks or uncertainties materialize, or should any of the underlying assumptions prove incorrect, actual results may vary in material respects from those expressed or implied by these forward-looking statements. You should not place undue reliance on these forward-looking statements.
Overview
We are a leading digital healthcare platform company that helps members consolidate and manage various components of their health in one place, regardless of where they are on their health journey. Our health and well-being interoperable ecosystem unifies the elements of individual and community health so everyone can live better, longer across the dynamic continuum of their healthcare needs. We are driven by our philosophy that we are “All Together Better” as well as our goal to turn individual progress into community transformation. Given a unique blend of expertise across technology, media, and healthcare, we have, through a number of strategic acquisitions and integration of key technologies and capabilities over the last ten years, built our platform into what we believe is the most comprehensive and seamless experience currently available in the digital healthcare space.
Our business combines business-to-business and direct-to-consumer sales models and functions on a more distinctive business-to-business-to-person model. Focusing on the individual, we aim to provide a solution that we believe is more comprehensive than other digital platforms by bringing together scientifically validated clinical programs and engaging content to deliver a personalized experience for our members, whether they come to us by way of the workplace, the exam room, or the living room.
We derive revenue from multiple stakeholders and while we are focused on the individual’s unique experience, our platform is purpose-built to seamlessly connect stakeholders to the health management tools they need to drive engagement, establish sustained participation, increase satisfaction, reduce costs, and improve outcomes. As we expand our offerings and look to further develop our technologies, we continue to consider the distinct needs of each client channel as well as opportunities to better connect and cross-sell while we grow and integrate our solutions into one seamless platform.
Our one platform can be disaggregated into three client channels:
•Enterprise: Our enterprise channel includes a range of clients — from large employers and healthcare systems to government agencies and health plans — that use our platform to engage with their populations, dynamically measure the impact of that engagement, and efficiently deliver health and wellness services.
•Provider: Our suite of data- and information-driven solutions for healthcare providers are tailored to improve productivity and efficiency and enhance patient care and management while upholding the latest compliance, security, and privacy standards.
•Life Sciences: Our robust platform and suite of digital products and medical expert knowledge provides members with personalized information, programs, and resources to improve their health and well-being, and affords sponsors the opportunity to integrate their brands into Sharecare’s consumer experience in a highly contextual, relevant, and targeted environment.
Key Factors and Trends Affecting our Operating Performance
Our financial condition and results of operations have been, and will continue to be, affected by a number of factors, including our success with respect to the following:
•Expanding our Footprint. We believe that our current client base represents a small fraction of potential clients that could benefit from our highly differentiated solutions. We will continue to invest in our sales and marketing efforts and leverage our partner relationships to continue to acquire new clients, including individuals, providers, employers, health plans, government organizations, and communities.
•Expanding our Existing Client Relationships. We also believe that there is significant opportunity to generate growth by maintaining and expanding our relationships with existing clients, including:
◦increasing engagement and enrollment of eligible members with our existing enterprise clients through continued sales and marketing efforts, including targeted next-generation digital modeling and marketing, and capitalizing on insights from claims ingestion (the process by which we receive and process information from our clients), population risk stratification and incentives management;
◦facilitating intervention with Sharecare+, our high-touch, digital-first advocacy solution driving high quality experience, care, and value support;
◦promoting our marketplace of existing targeted digital therapeutics to close gaps in care in high-cost areas (with incremental fee per enrollee), which we believe represents a $1 billion revenue opportunity within our currently contracted clients; and
◦expanding our relationships with our top 25 provider clients with an opportunity to extend our provider products and services to more than 8,500 additional healthcare sites.
•Offering Additional Solutions. We believe there is significant opportunity to cross-sell our provider solutions to existing accounts, including deploying our value-based care solution to approximately 6,000 health system clients.
•Growing our Platform. We are constantly evaluating the marketplace for ways to broaden and enhance our client and member experience, improve clinical results, and increase revenue through product innovation, partnerships, and acquisitions. We intend to continue to leverage our expertise through adding digital therapeutics partnerships as well as the acquisition of products and services that are directly relevant to our existing clients. Additionally, we believe our strong and embedded client relationships provide us with unique perspectives into their evolving needs and the needs of their populations. For example, in January 2023, we launched Sharecare+, our digital-first, comprehensive advocacy solution designed to deliver value through benefits navigation, clinical engagement, virtual care, and chronic case and utilization management, and have entered into a multi-year strategic partnership with an affiliate of one of the largest payers to integrate our solution into their health guide services for hundreds of thousands of their members.
•Evolving our Products to Cater to an Evolving Industry. As the digital healthcare industry grows, we closely monitor evolving consumer trends and organizations’ needs so that we may adapt our platform to better suit our clients’ demands. Since March 2020, the COVID-19 pandemic greatly accelerated the demand for virtual care solutions and resulted in rapid growth and increased adoption of digital health technologies, which Sharecare was in a unique position to undertake. By building on our deep expertise in handling and managing mass health data, we launched a suite of distinct but complementary digital tools and programs to address the evolving emotional, educational, clinical, and operational challenges introduced by the pandemic. We intend to continue to look for opportunities to leverage our platform and expertise to provide first-mover solutions to evolving and future demands in the digital healthcare industry.
•Acquisitions. We believe that our proven track record of successful acquisitions coupled with the flexibility and capabilities of our platform positions us to continue opportunistically pursuing attractive M&A opportunities. We believe this potential is further accentuated by our multiple client channels and constantly expanding member base. Future acquisitions could drive value and growth in a host of ways, including access to new customers and potential cross-sell opportunities; unlocking new customer channels or geographies; adding new solutions to serve our existing client base; and adding new capabilities to enhance our existing solution offering or the efficiency of our platform. In addition, we believe our acquisition track record demonstrates our ability to realize synergies and optimize performance of potential M&A partners.
•Globalization Efforts and Cost Savings. Our globalization efforts across our Provider and Enterprise channels are currently being implemented and will continue throughout 2023. Through these globalization efforts, we believe there is opportunity to achieve approximately $30 million in annualized cost savings, which will include both operating and capitalized expense reductions. Cost savings began in the first quarter of 2023 and have increased as we have progressed throughout the year. The global shared service center is expected to become operational near the end of 2023.
Components of Our Results of Operations
Revenue
The enterprise channel provides employers and health plans with health management programs for large populations, including digital engagement, telephonic coaching, incentives, biometrics, digital therapeutics, home health offerings, advocacy solutions, and subscriptions to the Sharecare platform. Revenue is recognized on a per member per month (“PMPM”) basis or as services are provided. Provider revenue is primarily based on health document requests filled in the health data services business line, as well as subscription fees for various technology related services that assist providers with performance and maximizing reimbursement. Life sciences revenue is generated mostly through ad sponsorships to Sharecare’s extensive member database.
Costs of Revenue
Costs of revenue consist of costs incurred in connection with delivering our various revenue generating activities. Costs are primarily driven by volumes related to requests, engagement, and incentive fulfillment. The major components that make up our cost of revenue are personnel costs to support program delivery as well as customer service along with share-based compensation for employees engaged in delivering products and services to customers, data management fees related to file processing, and variable fees to deliver specific services that may require third party vendors, direct marketing, fulfillment, transaction fees, costs associated with exiting a contract, settlement of contractual obligations, or other costs that can be reduced to offset a decline in revenue. Because our growth strategy includes substantial opportunity to scale low-personnel cost products, we would anticipate future revenue to grow at a faster rate than cost of revenue as those low-personnel cost products mature. Costs of revenue do not include depreciation or amortization, which are accounted for separately.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of employee-related expenses, including salaries, benefits, commissions, employment taxes, travel, globalization efforts, and share-based compensation costs for our employees engaged in sales, account management, marketing, public relations and related support. In addition, these expenses include marketing sponsorships and engagement marketing spend. These expenses exclude any allocation of occupancy expense and depreciation and amortization.
We expect our sales and marketing expenses to fluctuate as we strategically invest to expand our business. As we scale our sales and marketing personnel in the short- to medium-term, we expect these expenses to fluctuate in both absolute dollars and as a percentage of revenue.
Product and Technology Expenses
Product and technology expenses include personnel and related expenses for software engineering, information technology infrastructure, business intelligence, technical account management, project management, security, product development, globalization efforts, and share-based compensation. Product and technology expenses also include indirect hosting and related costs to support our technology, outsourced software, and engineering services. Our technology and development expenses exclude any allocation of occupancy expense and depreciation and amortization.
We continue to invest in the development of our technology platform. Our technology and development expenses may fluctuate as a percentage of our total revenue from period to period partially due to the timing and extent of our technology and development expenses.
General and Administrative Expenses
General and administrative expenses include personnel and related expenses for our executive, finance, legal, and human resources departments plus all indirect staff in the divisions not attributable to service delivery, sales and marketing, or product and technology and our globalization efforts. They also include professional fees, share-based compensation, settlement of legal obligations, lease termination expense, enterprise resource planning implementation costs, acquisition related costs, rent, utilities and maintenance related costs. Our general and administrative expenses exclude any allocation of depreciation and amortization. Our general and administrative expenses may fluctuate as a percentage of our total revenue from period to period partially due to the timing and extent of our general and administrative expenses.
Depreciation and Amortization
Depreciation and amortization consists primarily of depreciation of fixed assets, amortization of software, amortization of capitalized software development costs and amortization of acquisition-related intangible assets.
Other Income (Expense)
Other income (expenses) primarily relates to the guarantee expense of a standby letter of credit for a third party non-profit organization and changes in the fair value of contingent consideration and warrant liabilities.
Results of Operations
Comparison of the Three Months Ended September 30, 2023 and 2022
The following table presents our unaudited Consolidated Statement of Operations for the three months ended September 30, 2023 and 2022, and the percentage change between the two periods:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
(in thousands) | | 2023 | | 2022 | | $ Change | | % Change |
Revenue | | $ | 113,327 | | | $ | 114,619 | | | $ | (1,292) | | | (1) | % |
Costs and operating expenses: | | | | | | |
Costs of revenue (exclusive of amortization and depreciation below) | | 64,367 | | | 60,322 | | | 4,045 | | | 7 | % |
Sales and marketing | | 13,549 | | | 12,032 | | | 1,517 | | | 13 | % |
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